Undisputed amounts of loss were discussed at the ABA property insurance law subcommittee last week. I have never met an insurance adjuster who said his company refused to pay undisputed amounts of loss when coverage was admitted. But, I have had insurance defense attorneys argue there is no legal obligation to pay undisputed partial amounts of loss, even if coverage is admitted.

Allan Windt discusses the issue in his treatise, Insurance Claims and Disputes:

When there is no dispute as to the existence of coverage for a portion of the insured’s claim, the carrier should pay that amount. It should not withhold payment on the ground that there is a dispute as to the remainder of the claim. The only exception to that payment rule is when the undisputed portion is insignificant in comparison with the total amount that is claimed.

Similarly, the carrier should not condition the payment of that portion of the claim that it internally acknowledges is owed on the insured’s either executing a release of the remainder of the claim or agreeing to accept a lesser sum than the insured believed himself or herself to be entitled to with regard to the remainder of the claim. The insurance company is not entitled to attempt to obtain an economic gain by making the payment of monies admittedly owed contingent on the insured giving up any rights.

If, therefore, the company either refuses to make a payment that it knows it owes or conditions its payment on the insured’s providing it some benefit, the company should be held to have breached the insurance contract and may potentially be subject to statutory damages, punitive damages, and an attorney’s fee award. Moreover, if the insurer does obtain a release under the circumstances described above, it will be unenforceable. The payment of an admitted liability is not consideration for an accord and satisfaction or compromise and settlement.1

(Footnotes omitted)

Windt cited legions of cases supporting his proposition.

Insurance defense attorneys usually cite Southeast Nursing Home, Inc. v. St. Paul Fire and Marine Insurance Company,2 which stated:

Southeast contends that St. Paul was guilty of bad faith because it refused to pay Southeast the amount of the loss it conceded was not in dispute. The policy, however, did not require St. Paul to pay anything until the appraisal process was concluded and the parties’ appraisers, or one of their appraisers and the impartial umpire, decided ‘the amount of the loss.’

In a footnote, that court explained some of its reasoning and why it was disregarding other case law requiring payment of undisputed amounts of a loss:

Southeast cites Foster v. Western World Insurance Co., 339 So.2d 395 (La.Ct.App.1976) and Cincinnati Insurance Co. v. Palmer, 297 So.2d 96 (Fla.Ct.App.1974) as supportive of its bad faith claim. These cases are legally and factually inapposite. First, neither describes the state of the law in Alabama; rather, both pertain to specific statutory provisions in other states. Second, neither required that the insurance company pay the undisputed portion of the insured claim, as Southeast urged the district court to do here. Even in Foster, the factually more similar case, the Louisiana Court of Appeals, construing a Louisiana statute, held only that the insurer was required to pay the amount of the loss for the contents because the total amount of the contents loss was not disputed. It did not require the insurance company to pay the portion of the building loss it conceded it owed because the total amount of building loss was contested.3

I expect that insurance defense attorneys will continue to argue that insurance companies have no obligation to pay partial amounts of agreed amounts of loss which are owed. Otherwise, their clients will lose the case and be held accountable for failing to do so. To me, it makes no sense that the law would support and provide immunity to slow paying and underpaying insurance companies. The entire purpose of insurance is to shift the financial burden to the insurer.
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1 Duty to pay that portion of a claim that is undisputed, 1 Insurance Claims and Disputes §2:22 (6th ed.).
2 Southeast Nursing Home, Inc. v. St. Paul Fire and Marine Ins. Co., 750 F.2d 1531 (11th Cir. Ala.1985).
3 Id. at 1539.

  • Tim Varga

    I agree with you Chip. No matter what, when reasonable liability has been assumed, ACV is owed. This also ties in with your blog about acv/rcv payments. Providing an estimate as an insurer allows the carrier to initiate acv payment as obligated under the polices “loss settlement” section. The fact that an insurance company wants to rewrite their policy after a loss in order to discriminate coverage to individual components of a dwellings or structure after a loss could be considered a breach of the policy contract. I have yet to see a policy that lists under “conditions” each individual component of a structure as having its own coverage determination. So far every policy I have seen dictates when there is a loss, in every case, it is the policy holders responsibility to prove their loss and under “Duties”, the policy holder is responsible for providing building specifications, estimates and receipts; so nowhere does it say that the insurance company gets to itemize each components as having coverage to dispute. Once reasonable liability is assumed, they owe for the ACV. Withholding the ACV because they just want to claim there are coverage disputes over individual building components is just a delay tactic and falls under unfair claims settlement practices. Allowing the insurer the right to deny coverage discriminatly based on their “opinion” just affords for anarchy. All an adjuster would need to die is just say that a coverage dispute exists and then the insurer would not be liable to pay anything; this is why there is a written contract.